Brokers have a huge part to play in the growing product recall market as claims continue to rise, an expert has said.
Mark Sbaglia, regional manager – liability, Pacific region at Allianz Global Corporate & Speciality, said that the firm views product recall cover as a “market opportunity” and it requires a broker presence.
“There is a lot of advice and support behind the product,” Sbaglia told Insurance Business. “It is incumbent on the broker and insurers to clearly articulate the scope of coverage, how it could benefit the customer. Ongoing changes in government legislation in product safety, technological advances in testing, allergen management etc., are just a few examples of the forever changing exposure landscape impacting manufacturers.”
AGCS recently released a report which found that product recalls have risen steadily over the last decade. Sbaglia pointed to the food and beverage industry and other down-stream manufacturers as key targets for the cover and went on to say that 81% of companies rated the risk of a recall as a “significant” or catastrophic risk. Major case studies ranged from contaminated confectionery with foreign plastic fragments, to eggs recalled due to a Fipronil contamination that resulted in removing them from more than 4,000 stores in Germany. Industry data also suggests that, on average, €156,000 per day ($244, 000) is paid on recall claims.
“We read a lot about major recalls in the media which heightens the awareness and need to purchase this cover,” Sbaglia continued.
He added that both brokers and insurers have to be aware of their responsibilities from a claims handling perspective.
“Apart from meeting the insured’s costs and third party costs arising from the incident, the client would also need professional support from dedicated product recall specialists where such services include: regulatory advice and handling, crisis PR and communications support, product testing and analysis, recall preparation processes etc,” he said.
“AGCS has also partnered with Red24 to help deal with recall related matters. Red24 operates in 120 countries providing access to locally based industry specialists who can support the training, auditing and crisis management for the client and broker.”
Once a claim has been made and paid, Sbaglia said the insurance industry should look to work with clients on mitigation to ensure a similar incident doesn’t occur, with Red24 considered a key advisor in this area.
The ACGS report analysed 367 insurance industry product recall claims from 28 countries and 12 industry sectors between 2012 and 2017 and found that in overall defective work and processes, product contaminations were the main source or cause of claims.
“I know these days it is pretty tough in terms of managing expenses,” Sbaglia said, “but especially publicly listed companies need to be careful because if something goes wrong they have a responsibility to shareholders and these sorts of losses go straight to their P&L, not to mention the damage it potentially causes to their brand.”
